Short-term traders sometimes practice what is called event trading. This is when either a news announcement is due, a surprise news announcement occurs, or a holiday is soon to occur. Holidays are seasonal and, thus, included here.
The major holidays during the year have shown to have recurring patterns. For example, some analysts have observed an Independence Day pattern. Stock market performance tends to be the strongest five days prior to Independence Day. Diminishing average performance generally occurs the five days following Independence Day. The sixth day after Independence Day is associated with strong stock market performance. Another example of a holiday pattern is that the two weeks before Thanksgiving seem always to be positive. However, as we have seen in the “Seasonal Patterns” section, November is generally one of the strongest months anyway. Thus, when we deduct for November’s habitual strength, the pre-Thanksgiving strength becomes more random and less useful. Is this type of information useful to the individual trader? The answer is up to the individual trader. In most cases, the observed pattern is well within expected statistically random results and is, thus, not helpful.
Another often-heard rule of thumb is to “Buy stocks on Monday and sell stocks on Friday.” However, monthly, weekly, and daily patterns have the same statistical problems as holidays. Any observed patterns, once adjusted for underlying trend and for randomness, show little in the way of consistent return. Testing any simple trading rule that has been popularized in current market conditions is important. In a recent study, Dahlquist (2009) finds a striking deterioration in the statistical significance and profitability of this trading strategy over the past three decades. In recent years, there is no evidence that Monday returns are any different from any other day of the week.
Source: Kirkpatrick II Charles D., Dahlquist Julie R. (2015), Technical Analysis: The Complete Resource for Financial Market Technicians, FT Press; 3rd edition.
Hey, you used to write magnificent, but the last few posts have been kinda boringK I miss your super writings. Past few posts are just a bit out of track! come on!